Last week, payday lenders sued the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System for allegedly dissuading banks from doing business with payday lenders. Plaintiffs argue that the bank regulators' efforts are part of the now infamous "Operation Choke Point," the Department of Justice's program to prevent fraudsters from gaining access to the banking system. Bank regulators, through these Choke Point initiatives, have effectively changed the regulatory landscape for banks and legitimate businesses without affording these entities an opportunity to weigh in.

The payday lenders contend that the banking regulators, urging banks to be mindful of reputation risk, have forced banks to sever their relationships with payday lenders. Rather than using notice-and-comment rulemaking, bank regulators have used informal methods to spur action, such as guidance documents and suggestions by bank examiners. Using guidance documents and other informal means to influence bank behavior, plaintiffs argue, runs afoul of the Administrative Procedure Act, because they are de facto mandates on banks that are implemented without public input. FDIC guidance, for example, identifies as higher-risk activities payday lending, magazine subscriptions, and pharmaceutical sales. Although these regulatory directives are about keeping banks away from bad actors, banks would rather cut ties with a legitimate customer than risk attention from their regulators. As the Department of Justice explained in a September 9, 2013 memo, it is up to legitimate businesses "through their own dealings with banks, [to] present sufficient information to the banks to convince them that their business model and lending operations are wholly legitimate." Such information campaigns likely will go unheeded by bankers following the not-so-subtle hints they are getting from their regulators.